When it comes to financial regulation the Australian Securities and Investments Commission (ASIC) is the big dog in town. Of late, ASIC has dropped some not-so-subtle clues that it is increasingly directing its focus on crypto companies playing it fast and loose with the law.
Its most recent target? A Queensland-based outfit known as BPS Financial Pty Ltd (BPS) that launched in 2019 and whose token ‘Qoin’ has come under the regulatory spotlight.
What is Qoin?
According to its website, Qoin is a “new commercial digital currency” built on its own Qoin Blockchain with a mission to become the “most widely accepted digital currency”. As a digital currency, participating merchants are able to accept the token as payment – not unlike businesses who accept crypto as a mean of exchange.
Curiously, the token – whose value fluctuates on a daily basis – can only be exchanged on the BPS-owned Block Trade Exchange. Furthermore, it argues that to maintain speed, scalability, stability and security, the Qoin blockchain is a “Permissioned Distributed Blockchain” in the sense that the Qoin Association only grants access to “credible independent validators”.
So to sum up:
- Qoin is a local blockchain-based token accepted by some merchants as payment.
- Qoin can only be traded on a single exchange which is owned by BPS, the company behind Qoin.
- Qoin uses its own blockchain which can only be validated by those approved by BPS.
Why is the token not traded elsewhere? Why is the blockchain only validated by those approved by the Association? Isn’t crypto supposed to be about decentralisation? Aren’t blockchains supposed to be public for transparency? Well, not in this case.
Qoin gets sued
In a recent statement, ASIC announced it has commenced civil proceedings against BPS – the company behind Qoin – for “allegedly making false, misleading or deceptive representations and engaging in unlicensed conduct in relation to a non-cash payment facility involving its crypto-asset token called Qoin”.
ASIC Deputy Chair Sarah Court said, “We allege that, despite what BPS represented in its marketing, Qoin merchant numbers have been declining, and that there have been periods of time where it was not possible to exchange Qoin tokens through independent exchanges”.
She added further that:
“ASIC is particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia, as we believe the more than 79,000 individuals and entities who have been issued with the Qoin Facility may have believed that it was compliant with financial services laws, when ASIC considers it was not.”
In conclusion, the statement noted that ASIC will continue to target action against what it deems “unlicensed conduct and misleading promotion of crypto-asset financial products that could harm consumers”.
ASIC’s main concern centres around consumer protection and ensuring that consumers are in its words “provided with honest and accurate information” because, “crypto-assets are highly volatile, inherently risky, and complex. Every crypto-asset is different, often making it difficult to compare with each other — or anything else.”
In response, BPS has denied the allegation, saying it is confident in its ability to defend the accusation, without providing any further details. And in a subsequent update to its community, it provided a link to ASIC’s website publishing its Australian Financial Services Representative number. It also reminded the community that “the Qoin Blockchain is independently managed in the USA by ConsenSys business, Kaleido Inc. ConsenSys is the leading Ethereum software company in the world”.
Qoin making the wrong kind of splash
The company is however no stranger to controversy, having been booted from Blockchain Australia in early 2021. At the time, concerns were raised that the Qoin token could only be traded on the platform owned by BPS and further, that daily trading limits were frequently imposed.
And then later in the year, things ramped up when a $100 million lawsuit was brought by merchants, investors and holders against the company after acquiring the token.
Further evidence that ASIC isn’t mucking around
As an indication of ASIC’s increased focus on the sector, in Mid-October, the financial regulator went after Holon Investments Australia Limited. The watchdog slapped Holon with several interim stop orders – basically an order saying “stop marketing your crypto funds” – to block it from offering its three crypto-related investment products to retail investors Down Under.
According to a statement from the financial watchdog, the stop orders were issued because the funds didn’t meet ASIC’s Target Market Determinations (TMDs), which provide guidelines on how funds market their investment products to retail investors.
ASIC claimed that Holon hadn’t “appropriately considered” the risks associated with their wide target market, including investors who intend to use the vehicle as a standalone fund (75-100%) or as a smaller component of their crypto exposure (up to 25%).
ASIC concluded by saying that Holon needed to “take immediate steps to ensure compliance”. Failing to do so would mean that the funds would be whacked with a permanent stop order, in addition to financial penalties.
Essentially, ASIC’s boil down to inadequate disclosures of the investment risks to the company’s target audience.
The takeaway from all of this?
ASIC’s mandate is about consumer protection, which fundamentally requires companies to disclose all material information for consumers to make an informed decision. Now, it appears to be clamping down on crypto companies who have been lackadaisical with its disclosures, whether intentionally or negligently.